(The following is a reprint of an articleoriginally published on Mondaq. The author, Paolo Beconcini, is a Bejing-based partner in the San Francisco law firm of Carroll, Burdick & McDonough.)

Taobao is a Chinese-language website for online shopping founded by Alibaba Group in 2003 which has become, by far, the largest e-commerce platform in the world, and thus a very appetizing market for counterfeits. Similar to eBay, it has than 60 million visitors daily, sells 48,000 goods each minute and had a C2C turnover of over $163 billion in 2012. As a consequence, it has become the object of attack for foreign brand owners who are fighting an ongoing battle with counterfeiters and who have invested heavily in attempts to curb the illegal transactions of counterfeits on Taobao.

Taobao shops closed daily

Hundreds of Taobao shops handling counterfeit goods are closed daily, but it is a losing game. Each time one is shut down, more pop up to take over the business. The perception among IP owners is that monitoring Taobao and shutting down its counterfeit shops is a waste of resources. Furthermore, it is difficult for a brand owner to actually assess if any damage at all has been done to an infringer by shutting down its Taobao window. Frustration is the inevitable outcome. It begs the question as to whether the action IP owners take with Taobao are really suitable in the long term to achieve their IP-management goals.

Is the problem with Taobao?

The frustration of IP owners towards Taobao leads often to a misperception. Taobao is accused of illegal handling of and intentionally profitingfrom thecounterfeit business. In reality Taobao is very committed to IP protection. The company has internal regulations and ethical guidelines which are in place to monitor, prevent and remove infringements. Furthermore, the vast majority of products on Taobao are original and brand new and are offered for sale at a fixed price. Nonetheless, in the field of brand protection, Taobao evokes a negative reaction. The reality is that few IP owners could say that Taobao is not receptive to their concerns. The proof is that Taobao is willing and ready to shut down e-stores as soon as an IP owner provides objective evidence of the infringement. Indeed, Taobao launched an IPR protection online system in 2011. As the right holder, brand owners can register all their trademarks, patents and copyrights there. After being checked by Taobao, the right owner can file complaints against suspected infringing links to remove the illegal pages. Also, when a user/owner receives a certain amount of complaints, he will be forced out of Taobao and will not be able to open e-shops in Taobao again. As Ma Yun, the former CEO of Alibaba Group, said, the offline counterfeiters are worse than those on Taobao. Understanding and using Taobao is a lesson each rights owner must learn to improve their company’s brand protection strategy in China.

Closure is not a deterrent

When it comes to counterfeiters, Taobao mostly hosts traders rather than factories. Shutting down web-shops in Taobao only impacts traders temporarily as manufacturers and masterminds of counterfeit rings use in fact many distribution channels. Secondly, a new link in Taobao can be quickly re-established by using a new account and contacts. In practice, shutting down e-shops in Taobao may – at most – lead to a very temporary slowdown of infringing activities, but will neither be either a deterrent for infringers to stop counterfeiting nor a direct hit at the core structure of the counterfeit organization. If we rank trademark enforcement activities based on the deterrent value they have, for instance, on an infringing ring, shutting down a trader shop in Taobao does not rank among the first and most incisive actions. If the success and effectiveness of an action in Taobao is not realistically measuredagainst these factors, it is evident that a brand owner will be easily and quickly frustrated.

Collecting information

Considering enforcement as an isolated enforcement activity will lead to frustration, misperceptions and ultimately to an ineffective enforcement and improper use of the possibilities offered by Taobao in the fight against counterfeiting. Based on our experience, Taobao should not be seen firstly as an enforcement target, but rather as an investigative tool. The availability of Taobao to cooperate should not be used only to shut down e-shops, but to collect more information. Taobao, in our opinion, gives an IP owner a source of information on the infringement trends of his brands. It can provide important information about counterfeiting, distribution channel control, and even act as a test for checking the popularity of certain brands over others, thus helping manage supply chains and marketing.

Investigative tool

If Taobao is seen more as an investigative tool and a source of information rather than as an infringer itself, new brand-protection strategies can be planned to exploit this tool. Information collected on Taobao could be, for example, the perfect start to investigations aimed at finding not only the trader behind the e-shop, but also the factories and syndicate behind the trader. When, for instance, traders handling high volumes of fakes are found in Taobao, the IP holder should refrain from asking Taobao to delete that e-shop. Rather, he should subject the target to further investigation and IPR enforcement by raids or a civil lawsuit. By routinely shutting down the page (and this is what normally happens!), the brand owner deprives himself of the chance to hit a larger counterfeiting organization. In a comprehensive brand-protection management strategy, such action would be an obvious mistake.

Police raid

That IPR enforcement in Taobao can be successful is also shown in some recent cases. In March 2013, the Chinese police in Nanjing, attracted by several complains by consumers,investigated a shop on Taobao selling a certain NUTRILITE protein powder. Afterwards, the brand owner AMWAY purchased and tested some samples, and it was confirmed that the protein powder was fake. The police raided the premises and during the police action, more than 170,000 cans of fake AMWAY products were seized with avalueof more than RMB 140 million (about $22 million). Also in March 2013, the Economic Investigation Department of the Qingpu District Public Security Branch of Shanghai City seized more than 20,000 cosmetics of different western brands in a private house that were valued at more than RMB 10 million (about $1.6 million). Eight suspects were arrested.

Changing perspective

The examples above are a simple demonstration of our recommended approach to infringement in Taobao. Brand owners in these cases have used Taobao not as the enforcement target but as a source of information and an investigative starting point. A change of perspective can end the frustration of the current most-common strategy of merely shutting down trading e-shops in Taobao.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.